BroadBand Tower, Inc. (TSE:3776) Passed Our Checks, And It's About To Pay A JP¥1.00 Dividend

BroadBand Tower, Inc. (TSE:3776) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase BroadBand Tower's shares on or after the 29th of December will not receive the dividend, which will be paid on the 5th of March.

The company's upcoming dividend is JP¥1.00 a share, following on from the last 12 months, when the company distributed a total of JP¥2.00 per share to shareholders. Looking at the last 12 months of distributions, BroadBand Tower has a trailing yield of approximately 1.0% on its current stock price of JP¥194.00. If you buy this business for its dividend, you should have an idea of whether BroadBand Tower's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see BroadBand Tower paying out a modest 29% of its earnings. A useful secondary check can be to evaluate whether BroadBand Tower generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

It's positive to see that BroadBand Tower's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for BroadBand Tower

Click here to see how much of its profit BroadBand Tower paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at BroadBand Tower, with earnings per share up 10.0% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. BroadBand Tower's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Is BroadBand Tower worth buying for its dividend? Earnings per share have been growing moderately, and BroadBand Tower is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and BroadBand Tower is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in BroadBand Tower for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 4 warning signs for BroadBand Tower you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.